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Futures and Charting FAQ


What is the time delay on futures?

For most quotes there is a ten-minute delay.

What is the time delay on the options?

There is a 10-minute delay for the option quotes, as with the futures display.

How do I change the months for the options displayed?

Simply click another month in the drop-down and pick "view." The display will be updated with the new strike price and premiums for that option month.

What is on the option display page?

In the top left corner is the commodity drop-down to select which commodity you wish to view. In the top left corner of the gray box is the month drop-down corresponding to the chosen commodity. In the top right corner of the gray box is the future price for the chosen commodity and month, this is a 10-minute delay. The strike prices are the bold blue values going horizontally in the dark gray boxes. The put and call premium values for located directly below each strike price.

Which trading sessions are included in the quote displays?

A composite quote is displayed for those exchanges that have both day and night trades. For example, if the high of the day occurred during either the Day or EUREX session, it will be displayed for that commodity.

How do I pick another commodity to be displayed?

Pick the commodity you wish to see from the drop-down list and click "view." The months that are traded for that future will be displayed. For the option month, you will have to select the month you wish to display from the drop-down.

How do I change the chart at the bottom of the delayed quotes?

By clicking on the commodity option months listed, the chart at the bottom of the page will update. The default chart is the nearby month. This chart represents the moving average for the past year.

What is customizable charting?

Customizable charting allows you to change the commodity, time frame, and type of chart and study. This allows for technical analysis to aid you in your marketing decisions.

What is the Bollinger Bands Study?

Bollinger Bands (BOLL)
Bollinger Bands are a kind of trading envelope. They are lines plotted at an interval around a moving average. Bollinger Bands consist of a moving average and two standard deviations charted as one line above and one line below the moving average. The line above is two standard deviations added to the moving average. The line below is two standard deviations subtracted from the moving average. Traders generally use them to determine overbought and oversold zones, to confirm divergences between prices and indicators, and to project price targets. The wider the bands are, the greater the volatility is. The narrower the bands are, the lesser the volatility is. The moving average is calculated on the close.

Reference material provided by FutureSource

What is the Commodity Channel Index Study?

Commodity Channel Index
The Commodity Channel Index, CCI, is designed to detect beginning and ending market trends. The computational procedure standardizes market prices much like a standard score in statistics. The final index attempts to measure the deviation from normal or major changes in the market's trend.

According to the original author, 70% to 80% of all price fluctuations fall within +100 and -100 as measured by the index. A thorough discussion of the Commodity Channel Index can be found in the October 1980 edition of Commodities magazine (now Futures).

The trading rules for the CCI are as follows. Establish a long position when the CCI exceeds +100. Liquidate when the index drops below +100. For a short position, you use the -100 value as your reference point. Any value less than -100, e.g. -125, suggests a short position, while a rise to -85 tells you to liquidate your short position.

Reference material provided by FutureSource

What is the Displaced Moving Average Study?

Displaced Moving Average (DMA)
The displaced moving average, DMA, study allows you to shift or center the moving average on the price chart. You specify the length for one or two moving averages. You must then select the number of intervals to displace the moving average(s). That value may be positive or negative. A negative value displaces the moving average to the left of the price bars; it lags the moving average(s). Conversely, a positive value leads the price bars. You may overlay the moving average(s) on the bar chart or display them separately.

This study can be used for a variety of different purposes. You may use the study to de-trend the data, for cycle estimation, for phasing and as a simple moving average trading system. Refer to Kaufman's book and Murphy's book for additional details on using the displaced moving average study.

As the study displays on your monitor, the moving averages are simply displaced - moved to the right or left over the price chart. A negative displacement value lags the moving average(s) which can be used to center the moving average on the price chart. For example, a 20 period moving average with a -10 displacement centers the moving average on the price chart.

Remember, the mathematics of a moving average force it to always follow or lag the actual price data. By centering the moving average, you have a more accurate picture of the moving average relative to the current price on the chart.

By using this technique, you can quickly see how the displaced moving average study could be quite useful in locating and estimating cycles. For example, if the expected cycle is 28 periods, you specify a moving average length of 28. The displacement value is then one-half of that value or -14. Try it. What happens to the moving average if you change the displacement value to 14 rather than -14?

You can, of course, use the moving average crossover buy/sell signals. Another approach is to use closing prices with the moving average(s), or you might even use the displaced moving average as an estimate of support or resistance areas on the price chart. Please refer to the moving average study for the suggested trading rules. As you can see, there are a variety of ways to use this study. It only requires a small amount of experimentation on your part.

Reference material provided by FutureSource

What is the Envelope Study?

Envelope Moving Average (ENV)
The moving average envelope study is a derivative of the moving average study. It uses only one moving average, which you specify. You also determine the price band. The price band has two lines which are an equal percentage distance from the exponential, smoothed, or normal moving average. The moving average line is not visible.

While several different trading rules are available, the most simple approach uses the price band as an entry and exit point. When price penetrates the upper price band, you initiate a long position or buy. If you have an existing short position, you close out shorts and go long. Conversely, when prices penetrate the lower price band, you close out long positions and go short.

In Kaufman's book, Commodity Trading Systems and Methods, he suggests several other approaches. They are as follows:

  • Buy or sell on the close after a signal is indicated.
  • Buy or sell on the next market open following a signal.
  • Buy or sell with a delay of 1-3 days after the signal.
  • Buy or sell after a price retracement of 50% (or some other value) following a signal.
  • Buy or sell when prices move to within a specified risk relative to a stop-loss point.

In the case of using the moving average envelope on intraday prices, Kaufman suggested the following rule. "Only one order can be executed in one day, either the liquidation of a current position or an entry into a new position."

Kaufman's book is an excellent source and reference. While it is definitely written for a mathematically inclined individual, a novice trader would benefit from several of the chapters, especially the chapters on moving averages, oscillators and technical analysis.

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What is the Exponential Moving Average Study?

Exponential Moving Average (EMA)
An exponential moving average is another type of moving average. In a simple moving average, the price data has an equal weight in the computation of the average. Also, the oldest price data is removed from the moving average as a new price is added to the computation. The exponential moving average assigns a weight to the price data as the average is calculated. Thus, the oldest price data in the exponential moving average is never removed, but it has only a minimal impact on the moving average.

This study displays three exponential moving averages as a crossover system. Generally, the lengths are short, intermediate, and long term. A commonly used system is 4, 9, and 18 intervals. An interval may be in ticks, minutes, days, weeks or months; it is a function of the chart type.

A buy signal occurs when the short and intermediate term averages cross from below to above the longer term average. Conversely, a sell signal is issued when the short and intermediate term averages cross from above to below the longer term average. You can use the same signals with two moving averages, but most market technicians suggest using longer term averages when trading only two exponential moving averages in a crossover system.

Another trading approach is to use the current price concept. If the current price is above the exponential moving averages, you buy. Liquidate that position when the current price crosses below either moving average. For a short position, sell when the current price is below the exponential moving average. Liquidate that position when current price rises above the exponential moving averages.

As you use exponential moving averages, do not confuse them with simple moving averages. An exponential moving average behaves quite differently than a simple moving average. It is a function of the weighting factor or length of the average.

Reference material provided by FutureSource

What is the High/Low Moving Average Study?

High/Low Moving Average (HLMA)
This study allows you to quickly and easily compute a simple moving average of the high and low for the interval. The length of the moving average may vary for the high and low.

For example, some traders use this study as a measure of the market's support and resistance areas. Simply, at what price level do buyers enter the market and support prices, or at what price level do sellers take profits and pressure the market lower. The moving average of the high could be the resistance area, while the moving average of the low is the support area.

Like any moving average system, you can vary the rules of the trading system. Some traders prefer to buy or sell breakouts above or below the resistance and support areas, respectively. Others, tend to use the resistance and support areas as zones to establish a market position in the direction of the dominant market trend.

Generally, the high/low moving average is not a crossover system. Rather, it creates a channel about the bars on the price chart. In a market with a strong trend, prices may trade beyond the channel, either above or below. A trader could use the escape from the channel as a strong reason to establish a complementary market position.

FutureSource allows you to specify the length of the interval for both the high and low. The lengths do not have to be equal in length. For example, you might use ten intervals for the high and only eight intervals for the low.

Reference material provided by FutureSource

What is the Highest High/Lowest Low Study?

Highest High/Lowest Low (HILOW)
The study plots the highest high and the lowest low for the number of periods you specify.

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What is the Historical Volatility Study?

Historical Volatility (HV)
Although traders cannot predict the future, they must make intelligent guesses as to what the future holds. A standard approach used in option evaluation is to look at the past. What has historically been the volatility of a certain commodity?

If for instance, the volatility of Treasury Bonds has been no higher than 25% over the last ten years, then a guess of 30% is somewhat impractical. Based upon the past ten years, 25% or lower proves to be more realistic value for the volatility.

There are a number or ways to calculate the historical volatility. The first thing to determine is the time frame. Do you want to study the last ten days, six months, or five years? What length of time is required to obtain an accurate picture? Generally, traders tend to start looking at volatility over a long time, at least ten years. This allows them to identify short-term deviations from normal activity. However, you must not overlook the short-term volatility either. If a commodity has averaged 25% volatility over the last year, but only 15% over the past thirty days, you may want to adjust the volatility estimates to accommodate the most recent data. Rather than using a figure of 25%, adjusting the figure to 20% as the midpoint may prove more accurate.

Once you establish a time frame, you need to determine the price intervals. Volatility can vary greatly based on the interval. For example, you may decide to monitor the volatility of the last ten weeks measuring the price changes at the close of each day. This figure can be quite different from that of the price changes at the end of each week. Prices can fluctuate wildly from day to day, but finish the week unchanged. When this happens, volatility for the daily price changes is higher than that of the weekly price changes.

You may think that there are an infinite number of ways to calculate the historical volatility. However, as long as price changes are measured at regular intervals, the annualized volatilities resulting from these intervals are usually very similar.

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What is the Lane's Fast Stochastic Study?

Stochastic (STO)
If you have read the discussion on the slow stochastic, you might find the following rather repetitious. The discussion on trading rules is identical to the slow stochastic, however you may want to review the computations, since they are the basis for the slow stochastic values.

Dr. George C. Lane is the author of the stochastic indicator. His basic premise is as follows: During periods of price decreases, daily closes tend to accumulate near the extreme lows of the day. Periods of price increases tend to show closes accumulating near the extreme highs of the day. The stochastic study is an oscillator designed to indicate oversold and overbought market conditions.

Some technical analysts prefer the slow stochastic rather than the normal stochastic. The slow stochastic is simply the normal stochastic smoothed via a moving average technique.

The normal stochastic, like the slow stochastic study, generates two lines. They are %K and %D. The normal stochastic has overbought and oversold zones. Dr. Lane suggests using 80 as the overbought zone and 20 as the oversold zone. Others prefer 75 and 25.

Dr. Lane also contends the most important signal is divergence between %D and the commodity. He explains divergence as the process where the slow stochastic %D line makes a series of lower highs while the commodity makes a series of higher highs. This signals an overbought market. An oversold market exhibits a series of lower lows while the %D makes a series of higher lows.

When one of the above patterns appear, you should anticipate a market signal. You initiate a market position when the %K crosses the %D from the right-hand side. A right-hand crossover is when the %D bottoms or tops and moves higher or lower and the %K crosses the %D line. According to Dr. Lane, your most reliable trades occur with divergence and when the %D is between 10 and 15 for a buy signal and between 85 and 90 for a sell signal.

Reference material provided by FutureSource

What is the Lane's Slow Stochastic Study?

Slow Stochastic (SSTO)
Dr. George C. Lane is the author of the stochastic indicator. His basic premise is as follows:During periods of price decreases, daily closes tend to accumulate near the extreme lows of the day. Periods of price increases tend to show closes accumulating near the extreme highs of the day. The stochastic study is an oscillator designed to indicate oversold and overbought market conditions.

Some technical analysts prefer the slow stochastic rather than the normal stochastic. The slow stochastic is simply the normal stochastic smoothed via a moving average technique.

The slow stochastic, like the normal stochastic study, generates two lines. They are %K and %D. The stochastic has overbought and oversold zones. Dr. Lane suggests using 80 as the overbought zone and 20 as the oversold zone. Other technicians prefer 75 and 25.

Dr. Lane also contends the most important signal is divergence between %D and the commodity. He explains divergence as the process where the stochastic %D line makes a series of lower highs while the commodity makes a series of higher highs. This signals an overbought market. An oversold market exhibits a series of lower lows while the %D makes a series of higher lows.

When one of the above patterns appear, you should anticipate a market signal. You initiate a market position when the %K crosses the %D from the right-hand side. A right-hand crossover is when the %D has bottomed or topped and is moving higher or lower and the %K crosses the %D line. According to Dr. Lane, your most reliable trades occur with divergence and when the %D is between 10 and 15 for a buy signal and between 85 and 90 for a sell signal.

Reference material provided by FutureSource

What is the Least Squares Linear Regression Study?

Least Squares Linear Regression (LIN)
FutureSource uses the least squares technique to fit a straight line to the data. In simple terms, the software system computes the linear trend with 1 to time. Is the market trending lower or higher with respect to time?

Once the calculations are completed, FutureSource draws the trendline on the screen.

In practical use, the regression line indicates the dominant market trend relative to time. It can inform you when the market is diverging from an established trend, but only when prices fluctuate uniformly around the trendline and within a narrow range. The better the fit of the equation to the data the more reliable the linear trend.

Do not rely on this study when prices deviate widely about the trendline. The fit of the trend to the data is most likely not very reliable. If the price chart flows uniformly about the regression line, the market should have a tendency to continue in the direction of the statistically fit trendline. Any large deviation from the regression line implies a change in the dominant market trend.

Reference material provided by FutureSource

What is the Line Oscillator Study?

Line Oscillator (LOSC)
This study is a combination of two different studies. The first set of calculations compute an oscillator. The second part computes a moving average of the oscillator. You can specify a value for a moving average of the oscillator. FutureSource computes the values and displays two lines.

Trading signals occur whenever the two lines cross. It is a relatively sensitive indicator and works well for intraday charts and trading, but the study generates valid trading signals for any chart type available within the FutureSource software system.

Trading signals for this study use a crossover system. If the oscillator crosses from above the moving average to below the moving average of the oscillator, establish a short position. Conversely, if the oscillator crosses from below to above the moving average of the oscillator, establish a long position.

Reference material provided by FutureSource

What is the Moving Average Convergence/Divergence Oscillator Study?

Moving Average Convergence/Divergence (MACD)
The MACD is similar in concept to the line oscillator. In fact, the buy/sell indicators are identical. The difference is the MACD uses exponential moving averages versus the simple moving averages used in the line oscillator study.

Gerald Appel is credited with developing this study. His trading rules are simple. You buy when the oscillator crosses above the slower exponential moving average of the oscillator. Conversely, you sell when the oscillator crosses from above to below the exponential moving average of the oscillator. Lastly, divergence is possible with the MACD. The ideal signal would show divergence, clearly break a dominant trendline, and display the crossing of the MACD lines.

Another approach is to use this study in conjunction with long term charts. For example, you select the underlying weekly or monthly chart that corresponds to the intraday or daily chart for the same futures instrument. Now, you display the study on the long term chart. If the longer term chart is bullish, i.e., a buy signal is indicated, you want to be very cautious in short positions. You are trading against the longer term trend.

Reference material provided by FutureSource

What is the Momentum Oscillator Study?

Momentum (MOM)
Momentum monitors the change in prices. It tells you whether prices are increasing at an increasing rate or decreasing at a decreasing rate. Is the market trend about to change? Is the market overbought or oversold? Momentum may help you find those market conditions.

FutureSource calculates momentum by computing the continuous difference between prices at fixed intervals. That difference is either a positive or negative value. The software plots the differences about a zero line. When momentum is above the zero line and rising, prices are increasing at an increasing rate. If momentum is above the zero line but is declining, prices are still increasing but at a decreasing rate.

The opposite is true when momentum falls below the zero line. If momentum is falling and is below the zero line, prices are decreasing at an increasing rate. With momentum below the zero line and rising, prices are still declining but at a decreasing rate.

The normal trading rule is simple. Buy when the momentum line crosses from below the zero line to above. Sell when the momentum line crosses from above the zero line to below. Another possibility is to establish bands at each extreme of the momentum line. Initiate or change positions when the indicator enters either of those zones. You could modify that rule to enter a position only when the indicator reaches the overbought or oversold zone and then exits that zone.

Reference material provided by FutureSource

What is the Moving Standard Deviation Study?

Moving Standard Deviation (MSTD)
The moving standard deviation is a measure of market volatility. It makes no predictions of market direction, but it may serve as a confirming indicator. You specify the number of periods to use, and the study computes the standard deviation of prices from the moving average of the prices.

Reference material provided by FutureSource

What is the Oscillator Study?

Oscillator (OSC)
Technical analysts use a variety of oscillators. An oscillator is the simple difference between two moving averages. FutureSource calculates and plots the difference between two moving averages. Those values oscillate about the zero line and are plotted as a histogram.

One trading rule is similar to the crossover system used in moving averages. In fact, the oscillator is another method of using two moving averages. Sell when the oscillator crosses the zero line from above to below. Buy when the oscillator crosses from below to above. Some traders buy the valleys and sell the peaks of the oscillator.

FutureSource plots the oscillator using vertical bars. The oscillator has no confined limits. Its value fluctuates widely. It is a function of price volatility and the moving averages.

Reference material provided by FutureSource

What is the Rate of Change Oscillator Study?

Rate of Change (ROC)
This study monitors market momentum. It calculates the market's rate of change relative to previous trading intervals. You specify the value. At the peaks, the indicator suggests a market that is overbought. Valleys or troughs indicate an oversold market condition.

Some market technicians use a very simplified approach for the rate of change study. It issues buy and sell signals based upon the midpoint or zero line. You sell when the rate of change line crosses from above to below. You buy when the indicator crosses from below to above. This assumes an oversold or overbought market condition precedes the crossover.

FutureSource calculates the rate of change study somewhat differently than traditional methods. As a result, the midpoint or zero line has a value of 10,000, not zero.

In most instances, it is best to use the indicator as a precursor to change in market direction. One approach is to establish extreme zones for the study, much like the RSI or Stochastic. Also, the indicator is similar to an oscillator with regard to the market accelerating or decelerating. However, a good technical analyst must learn to tolerate the study in extreme bull and bear markets. It can generate many false signals under those market conditions.

Reference material provided by FutureSource

What is the Tick Volume Study?

Tick Volume (TVOL)

Tick Volume is not an exact indicator. If you are familiar with the traditional uses of volume, you should quickly understand the significance of tick volume.

Traders generally use the following rules for volume analysis:

  • If prices are up and volume is rising, the market is strong.

  • If prices are up and volume is declining, the market is very weak.

  • If prices are down and volume is rising, the market is weak.

  • If prices are down and volume is declining, the market is strong.

Other rules you might find worthwhile are:

  • In a bull market, volume has a tendency to increase on rallies and to decrease on reactions.

  • In a bear market, volume has a tendency to increase on declines and decrease on rallies.

  • Trading volume usually increases dramatically at tops and bottoms in the price chart.

At first, it appears these trading rules are in conflict. Actually, they imply very similar market conditions. Volume activity can be a powerful and useful indicator, especially when the trading volume deviates substantially from expected norms.

When you are using tick volume to determine market direction, it can be used like the On Balance Tick Volume (OBTV) study. You must watch for divergence between price direction and volume. For instance, if the market makes new highs while volume falls short of the previous high, it implies the market is getting weaker. In short, fewer buyers are entering the market at current levels. There is nothing worse than a chicken bull market, especially when it decides to reverse direction.

Remember, the tick volume study is an intraday study. It is subject to wide swings in direction and activity level. You may want to explore other approaches to using volume. Please refer to the Technical Studies Bibliography. The books on simple technical analysis or introductory technical analysis are your best investment on the subject of volume.

Reference material provided by FutureSource

What is the Variable Moving Average Study?

Variable Moving Average (VMA)
VMA allows you to get very creative with the moving averages. You may specify the length for each moving average. The moving average crossover buy/sell signals are as follows. A buy signal is flashed when the short and intermediate term averages cross from below to above the longer term average. Conversely, a sell signal occurs when the short and intermediate term averages cross from above to below the longer term average.

You can use the crossover approach with only two moving averages, however market technicians suggest using longer term averages, i.e., longer intervals, when trading only two moving averages in a crossover system.

Another approach is to use closing prices with the moving average(s). When the closing price is above the moving average(s), you maintain a long position. If the closing price falls below the moving average, you liquidate any long position and establish a short position.

Remember, any moving average system works best in trending markets. If you would like to read more about moving averages and optimized parameters, you should read Technical Analysis in Commodities by P.J. Kaufman. The optimization studies were performed between 1970 and 1976 by a large brokerage firm. The book also details other studies available within Technical.

Reference material provided by FutureSource

What is the Volume and Open Interest Study?

Volume and Open Interest (VOI)
Volume and Open Interest can be a barometer of future activity and direction. Volume measures the number of contracts that exchanged hands during the trading session. It measures market activity. Open Interest is the total number of outstanding contracts. It gauges market participation.

FutureSource tracks volume and open interest on an individual delivery month and total symbol basis. For example, the study on the daily November Soybean chart only displays the volume and open interest figures for the November contract. However, to save the VOI information for all contracts, you must create a perpetual chart for the symbol and set the VOI flag to YES. Refer to the Setup and Maintenance section for more details.

VOI does not have straight and simple trading rules. VOI is a measurement of the ebb and flow of the underlying market. Are new buyers/sellers entering the market? Are traders liquidating their positions? Does VOI confirm the trend or suggest a change in trend? The VOI data creates a lot of questions but not many simple answers to those questions.

The histogram (vertical lines) represent the volume on a daily basis, and the line which spans the chart represents the open interest. Traditionally, traders have used these rules for volume analysis:

If prices are up and volume and open interest are rising, the market is strong.

If prices are up and volume and open interest are declining, the market is weak.

If prices are down and volume and open interest are rising, the market is weak.

If prices are down and volume and open interest are declining, the market is strong.

Other rules you might find worthwhile:

In a bull market, volume has a tendency to increase on rallies and to decrease on reactions.

In a bear market, volume has a tendency to increase on declines and decrease on rallies.

Trading volume usually increases dramatically at tops and bottoms in the price chart.

At first, it appears these trading rules are in conflict. Actually, they imply very similar market conditions. Volume and open interest information is often a quite useful indicator, especially when the trading volume and open interest deviate from expected patterns. This includes contra-seasonal moves, volume patterns versus chart patterns, and divergence.

It is much beyond the scope of this manual to explain all of the above concepts, but you can use volume and open interest to determine market action. You must watch for divergence between price direction and volume. For instance, if the market makes new highs while volume falls short of the previous high, it implies the market is getting weaker. In short, fewer buyers are willing to enter the market at current price levels.

 Reference material provided by FutureSource

What is the Weighted Close Study?

Weighted Close (WTCL)
The weighted close study is another way of viewing the price data. It places a greater emphasis on the closing price rather than the high or low. This process creates a single line chart.

Unfortunately, the study does not have clear cut trading signals. You must use traditional chart techniques, such as trendlines, support and resistance, chart formations, and related technical analysis procedures. If you want a clear and concise picture of the market, this study produces such a picture. Trendlines are sometimes more visible as well as chart formations. The clutter of the bar chart is removed.

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What is the Wilder's Directional Movement Index Study?

Directional Movement Index (DMI)
The DMI, Directional Movement Index, is a trend following system. The average directional movement index, or ADX, determines the market trend. When used with the up and down directional indicator values, +DI and -DI, the DMI is an exact trading system.

The rules for using the DMI are simple. You establish a long position whenever the +DI crosses above the -DI. You reverse that position, liquidate the long position and establish a short position, when the -DI crosses above the +DI.

In addition to the crossover rules, you must also follow the extreme point rule. When a crossover occurs, use the extreme price as the reverse point. For a short position, use the high made during the trading interval of the crossover. Conversely, reverse a long position using the low made during the trading interval of the crossover.

You maintain the reverse point, the high or low, as your market entry or exit price even if the +DI and the -DI remain crossed for several trading intervals. This is supposed to keep you from getting whipsawed in the market.

For some traders, the most significant use of the ADX is the turning point concept. First, the ADX must be above both DI lines. When the ADX turns lower, the market often reverses the current trend. The ADX serves as a warning for a market about to change direction. The main exception to this rule is a strong bull market during a blow-off stage. The ADX turns lower only to turn higher a few days later.

According to the developer of the DMI, you should stop using any trend following system when the ADX is below both DI lines. The market is in a choppy sidewise range with no discernible trend.

Reference material provided by FutureSource

What is the Wilder's Parabolic Time/Price Study?

Wilder's Parabolic Time/Price (PARAB)
J. Welles Wilder's parabolic time/price is a simple study to use. The study continuously computes "top and reverse" price points. Whenever the market penetrates this "stop and reverse" point, you liquidate your current position and take the opposite position. If long, you liquidate the long position and establish a short position. If short, you liquidate the short position and establish a long position. The parabolic time/price study always has you in the market.While the calculations to derive the "stop and reverse" price are quite tedious, the concept of the study is a model of simplicity. If the trading adage, "The trend is your friend," has merit, this study is the mathematical expression of that adage. Once you initiate a position, the parabolic time/price study gives the market time to move in your favor. If the market does not move in your favor, you need to stop and reverse your position. This study always has a market position.

Wilder defines the "stop and reverse" price as the SAR. The value of the SAR is a function of both time and price. When you enter a position, either long or short, the SAR value moves slowly during the first few trading intervals. This allows the market to work in your favor. But as time progresses, the SAR is either hit, or it follows the market direction in your favor. Remember, the SAR price never reverses. It moves higher or lower with the market and always in the direction of your market position. It is an automatic trailing stop.

When the market trades or touches the SAR value, you stop and reverse your position. This study works best in a trending market. You can imagine the severe whiplash that develops in a choppy, sideways market. In fact, Wilder recommends using this study in conjunction with the Directional Movement Index. The DMI helps you to determine the predominant trend of the market, and it assists you in trading the market from that side only. For a complete discussion, please refer to Wilder's book, New Concepts in Technical Trading Systems.

The parabolic time/price study uses three values in the computations. These values affect the acceleration factor described in the computation section. They are the initial acceleration factor, the addition factor, and the acceleration factor limit. Wilder used the values of .02,.02, and .20, respectively.

You may want to change these factors for different markets. If you do, you specify the new values in thousandths. For example, Wilder's value for the initial acceleration factor is .02 or 20/1000. On your monitor, this value displays as 20. To change it to .03, you type the value 30 which FutureSource translates to 30/1000. You are encouraged to experiment with these values for the same market or for several different markets.

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What is the Wilder's RSI Study?

Relative Strength Index (RSI)
The RSI is another J. Welles Wilder, Jr. trading tool. The main purpose of the study is to measure the market's strength and weakness. A high RSI, above 70, suggests an overbought or weakening bull market. Conversely, a low RSI, below 30, implies an oversold market or dying bear market.

While you can use the RSI as an overbought and oversold indicator, it works best when a failure swing occurs between the RSI and market prices. For example, the market makes new highs after a bull market setback, but the RSI fails to exceed its previous highs.

Another use of the RSI is divergence. Market prices continue to move higher/lower while the RSI fails to move higher/lower during the same time period. Divergence may occur in a few trading intervals, but true divergence usually requires a lengthy time frame, perhaps as much as 20 to 60 trading intervals.

Selling when the RSI is above 70 or buying when the RSI is below 30 can be an expensive trading system. A move to those levels is a signal that market conditions are ripe for a market top or bottom. It does not indicate a top or a bottom. A failure swing or divergence accompanies your best trading signals.

The RSI exhibits chart formations as well. Common bar chart formations readily appear on the RSI study. They are trendlines, pennants, flags, head and shoulders, double tops and bottoms, and triangles. In addition, the study can highlight support and resistance zones.
 
Reference material provided by FutureSource

What is the Williams' Accumulation Distribution Index Study?

Williams' Accumulation/Distribution Index (AD)
The Williams' Accumulation/Distribution Index (AD) study attempts to measure market pressures. It specifically looks for market formula. The study serves to measure market strength and sentiment. You can use the normal technical tools on the study, i.e., trendlines, breakouts, support, and resistance. However, you must watch for instances of substantial divergence from the AD index versus the underlying chart as the key to future price direction.

The FutureSource definition of divergence is as follows: If the market continues to stampede into new high ground, the AD study should follow suit. When the market makes several new highs but the AD fails to make new highs, it is a warning signal of a market about to reverse direction. Conversely, a buy signal occurs when the AD fails to make lower lows while market prices drift to lower levels. In either case, divergence implies a reversal in the dominant trend may be near.

Once you spot divergence, initiate a market position when you spot a clear break in the trendline of the AD index. This minimizes the possibility of taking a position before the actual trend reverses.

Reference material provided by FutureSource

What is the Williams' Percent R Study?

William's Percent R (PR)
Noted author and commodity trader, Larry Williams, developed a trading formula called the %R. In his original work, the method examined ten trading days to determine the trading range. Once the ten day trading range was determined, he calculated where today's closing price fell within that range.

The system attempts to measure overbought and oversold market conditions. The %R always falls between a value of 100 and 0. The trading rules are simple. You sell when %R reaches 10% or lower and buy when it reaches 90% or higher.

Please note these values are reversed from normal thinking, especially if you use the RSI as a trading tool. The %R works best in trending markets, either bull or bear trends. Likewise, it is not uncommon for divergence to occur between the %R and the market. It is just another hint of the market's condition.

Reference material provided by FutureSource

What is the Moving Average Study?

Moving Average (MA)
Moving averages are one of the most commonly used technical tools. They follow the trend, smooth the normal fluctuations of the data, and clearly signal long and short positions to the investor. This study displays moving averages as the normal crossover trading system.

Most investors and charting services use three moving averages. Their lengths typically consist of short, intermediate, and long-term. A commonly used system is 4, 9, and 18 intervals. An interval may be ticks, minutes, days, weeks, or even months; it depends upon the chart type.

The normal moving average crossover buy/sell signals are as follows. A buy signal is flashed when the short and intermediate term averages cross from below to above the longer term average. Conversely, a sell signal is issued when the short and intermediate term averages cross from above to below the longer term average.

You can use the crossover approach with only two moving averages, but market technicians suggest longer term averages (a longer interval) when trading only two moving averages in a crossover system.

Reference material provided by FutureSource

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